Yesterday, we learned that JPMorgan Chase (NYSE: JPM ) was criminally charged by U.S. authorities with two violations of the Bank Secrecy Act in relation to the Bernie Madoff case. Those charges are to be deferred for two years according to the terms of a historic deferred prosecution agreement.
As part of the deal announced yesterday by Preet Bharara, U.S. Attorney for the Southern District of New York, JPMorgan accepted responsibility for its conduct, while also agreeing to pay $1.7 billion to victims of Madoff's fraud. The bank also pledged to continue its reforms of its Bank Secrecy Act compliance program. Separately, JPMorgan also reached agreements in the Madoff case with the U.S. Treasury, the Office of the Comptroller of the Currency, and the Financial Crimes Enforcement Network.
You can read the supporting documents provided by Bharara here (link opens in PDF). I've been following the case for a while now, so I was familiar with most of the evidence. However, the timeline for the final five weeks of Madoff's fraud struck me as particularly troubling. Here it is, as outlined from Bharara's press release yesterday:
- Oct. 29, 2008: JPMorgan files a report with regulators in the United Kingdom, alerting authorities that Madoff's returns were "probably" "too good to be true." JPMorgan also notified U.K. authorities that it was withdrawing about $300 million of its own money from the Madoff feeder funds. JPMorgan does not alert U.S. authorities, however.
- Oct. 29, 2008: Madoff's "703 Account" -- a series of checking and brokerage accounts held with JPMorgan -- has a balance of about $3 billion.
- Oct. 29, 2008 – Dec. 11, 2008: During this period, more than $2 billion exits the 703 account. By the time of Madoff's arrest on Dec. 11, 2008, only about $234 million remained in the 703 Account. Of money that exited the account over this period, about $288 million eventually went to JPMorgan itself to pay for its redemptions from Madoff's feeder funds.
I'd suspect that even the staunchest defenders of JPMorgan would find this timeline a bit curious. I can certainly understand why CEO Jamie Dimon wanted to settle the Madoff case, even if it meant agreeing to a deferred prosecution agreement. There's some conduct that really doesn't stand up very well to scrutiny no matter how many lawyers you hire.